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USF Red Star shutdown underscores harsh economic reality

May 25, 2004

USF Corp. announced its closure of USF Red Star, a LTL (less than truckload) company operating in the Northeast, citing revenue losses as a result of a strike initiated by the International Brotherhood of Teamsters (IBT) on May 21.

With Red Star a financial burden to the parent company the shutdown is a sound decision, analysts say.

“In this economic environment, where just-in-time inventory is the norm, not the exception, any irregularity in transportation puts all Red Star customers at risk,” said Richard P. DiStasio, USF Corp. chairman, president & CEO. “As a result we have lost customers and revenues. Realistically, we know many of those customers are gone forever.”

According to Dow Jones newswires, Red Star’s revenue dropped 20% to $52.6 million in 2003. The company did post a profit in the fourth quarter— not from its operations, but from the selling a terminal in New Jersey, said Satish Jindel, of S.J. Consulting Group.

“Of all the carriers operating in the area, it [Red Star] has been the least profitable,” Jindel said. “It’s a good region to operate in — it’s just a matter of management and labor working together and making it happen.” Given its shaky financial situation, Jindel saw the closure of Red Star as “the right move,” indicating it is an example of an economic reality check.

“It’s a decision from a management point of view that makes a point that unions cannot take over decisions on how companies operate,” Jindel said.

Bear Stearns, an investment firm, agrees with Red Star’s closure.

“Longer term standing up to the Teamsters while improving its cost structure seems like the right move for USF,” said Bear Stearns in a written statement. “We believe this action should have taken place long ago.”

IBT, however, regards this move as a “callous action”, pointing out that 1,400 Teamsters are out of work as a result.

“It is irrational and reckless for a company to close its entire Eastern operations because 15 office workers tried to organize a union,” IBT said in a written statement. “Clearly, USF is using this as a smokescreen to shut down Red Star as a part of its ongoing anti-union campaign.”

IBT accuses USF Red Star of mismanagement for its financial woes.

“Bad management— not the union— is the problem at USF Red Star,” IBT stated, pointing out USF Holland as a top operator that is unionized.

But the timing of the strike, as the company was struggling to turn a profit was “not good,” said Jindel.

“They [workers] have to recognize the realities of today’s economic world and appreciate what they have,” Jindel said. IBT and USF representatives were contacted but did not comment at press time.